Whether you are filing at the last minute or using IRS form 4868 to get an automatic extension of the time to file taxes, if you are using a credit card to pay taxes, you’re going to be paying fees.  On the IRS website, three companies are suggested for use when you pay by credit or debit card.  Of these three companies, two charge 2.35% fees and one charges a 1.95% fee.  Clearly, the company to choose is the one with the lower fee.

The lowest fee company the IRS suggests for paying taxes by credit card is RBS WorldPay, Inc.  While .4% may not seem like much, it adds up when you are making multi-thousand dollar payments.  Unfortunately, it is not the fees charged by payment processors that will hurt you most.  Some credit card companies may consider these payments to be cash advances.  Since cash advances come with fees of 3-5% and interest rates that approach 30%, it is important to call your credit card company before you pay taxes by credit card.  Perhaps one of your companies may charge a cash advance fee and interest rate with these transactions, while another may not.

If your credit card company charges a cash advance fee and a higher interest rate on tax payments, you may want to consider doing a balance transfer to a 0% credit card if you will not be able to repay your balance immediately.  With a 0% balance transfer, you will once again have to pay a fee of 3-4%, but you will not have to pay interest for a year.  On a $2,000 payment, this can equate to savings of $500 or more in interest over the course of a year.

Regardless of the costs associated with paying taxes by credit card, it is imperative that you file either your taxes or an automatic extension by April 15th.  Failure to do so can lead to harsh late filing fees.  Additionally, failing to pay all of your taxes on time can lead to equally harsh late payment fees-not to mention unfriendly dealings with the IRS, whose collection methods make credit card companies seem polite.

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